The UK has economic strengths, such as a flexible labour market, which ensures that unemployment is low even in many of its economically struggling regions. But contrary to much of the received wisdom, Britain has not been one of Europe’s economic stars over the last 15 years. And Brexit is set to exacerbate the economy’s underlying weaknesses.

In terms of economic growth per head, Britain’s performance has been in line with France, a country now synonymous in the UK with economic failure. The British are no richer relative to the EU-15 average than they were 15 years ago, and the average Briton has to work more hours than the EU-15 average to achieve that income.

Sustainable increases in living standards require economies to combine land, labour, capital and technology in ever-more efficient ways; Britain has made a poor job of this. The UK’s productivity performance has been woeful, falling to just 90 per cent of the EU-15 average. This helps explain why Britons’ wages have risen by much less than their French and German counterparts over the last 15 years.

Moreover, the UK is highly dependent on London and its environs. Apart from London, just one British region – the south-east of England – has a GDP per capita in excess of the EU-15 average, meaning that just 27 per cent of the UK population live in regions wealthier than that EU average.

Far from catching-up with the richer parts of the EU – as one might expect as they adopt technologies and working practices developed elsewhere – the UK’s poor regions have fallen further behind.

Britain’s problems lie mainly on the supply-side and in the structure of public spending. Three key issues stand out: poor skills among a sizeable chunk of the workforce; weak infrastructure and a lack of affordable housing; and the centralisation of political and commercial power in London.

Unfortunately, Brexit risks aggravating most, if not all, of these problems. And Britain’s already startling regional imbalances are likely to worsen further, leaving much of the country’s population living in areas considerably poorer than the EU-15 average.

The Conservatives will provide some fiscal stimulus to counter the weakening of growth caused by Brexit, but will not make the long-term investments in infrastructure and skills needed by the UK. They have few MPs in the poorer regions that would benefit most from such spending, while the resulting higher borrowing and/or taxation would be unpopular with their core vote in England’s wealthy South.

Comments

Remarkable study. It is a pity that politics are not anymore based on facts. This goes for the US, the UK and France as well where the slogan "let the voice of the people be heard" is a subsstitue for reality denial, outright lies and demagogy

Some key precedents in the UK's past recent history show a number of these statements to be just opinions. The UK is leader in many industries and the UK is expanding its international trade and exports as official OBR figures show. The EU is declining since the 80's (30%) now with the UK exiting this will move lower to 15% of global international trade. The EU has not recovered its position unlike the united states. You make no reference to the regulations, and directives strangling the EU and you make no reference to the BUST economies, Portugal, Greece and Italy is edging this way. Spain was heavily bailed out (indirectly) but has bad assets shifted off its balance sheets. Wait for that that to return. There are so many dynamics to this debate but one thing is a clear, an open, progressive, and out reaching economy is something businesses like. Also the UK being the mother language of English and also home of the best business legal rules and structures and center of timezone will always give it an enviable advantage in trade internationally. The UK on the tech sector is leading Europe by a significant margin, as fintech and tech starts ups show. Contrary to the EU trying to entice such companies to the EU over Brexit. It will not happen. A full investigation was done, interviewing people and as one entrepreneur put it, sorry but London and UK is much more progressive on thinking, and there is a dynamic environment here. Expect this to continue.

The Eurozone has some big worries, banks which are technically bust, a currency which cannot survive in its current form and constant bailouts and potential bail-ins to come. The threat of referendums and more to come does not paint a good picture. The immigration element has been damaging in the way its been handled, but moreso barely 1-2% of the million migrants who are in Germany have jobs. Such situations are storing trouble coupled with more terrorism to come with Schengen allowing the free flow of potential ISIS across borders. The last comment was declared by Europol.

So its not just a question of reform the EU needs, its been at it for a long time. Its in real trouble and the UK should have no fear. The UK has historically been an outreaching country and it's creativity will also allow it to thrive and adapt. History shows this. Not only do the top industrialists in the USA and UK think so, they are now on record stating clearly the UK will now only survive it will thrive. They should know they are global industrialists.

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Winner of the Prospect 2015 Think Tank of the Year Award - UK International Affairs